Section 8 Investing Is Now Too Popular

Section 8 investing has officially become too popular. Yep, a program that nobody wanted to touch just a few years ago is oversaturated.

And it’s a big problem for out of state investors trying to lean on section 8 investing as a means to hedge their risks.

In the last 6-12 months I’ve seen a huge investor appetite for section 8 investing. 

At first it wasn’t a big deal, but it’s now clearly having an impact on the market.

Unfortunately, people are getting into section 8 investing for the wrong reasons. And they don’t truly understand the downsides. 

The good news is, if you understand these trends it’s easy to benefit from them. I’m going to cover all of that in this post and tell you what I’m seeing on the ground in Detroit.

Why Out of State Investors Are Flocking To Section 8 Investing

Section 8 investing used to be a niche strategy that kind of flew under the radar. 

In fact, a friend described it to me years ago, well before I was investing in real estate, and it sounded complex. 

It wasn’t at all mainstream.

But folks are increasingly looking to section 8 investing for two primary reasons.

Reason #1: Interest Rates Are Driving Investors Out of State

With higher interest rates than we’ve seen in decades, real estate investors are finding that it’s harder to cash flow in their normal markets.

With fewer local options, they’re starting to explore new markets. Many of those areas are far from home where the only option is to invest out of state.

This is the primary driver that’s fueling the section 8 investing wave. 

But why section 8 specifically?

Reason #2: Section 8 Is Seen As A Risk Hedge

Quite simply, out of state investors believe that section 8 investing limits their risk.

Remember, you’re already taking substantial risk by investing out of state.

You must trust the people and team you’re working with. After all, you can’t physically be at your property if something goes wrong.

Anything you can do to help limit that risk is pretty attractive. Hedging against non-paying tenants seems like a no-brainer, right?

The guaranteed rent from section 8 gives a sense of security for these investors. 

Drawbacks of The Section 8 Investing Trend

I don’t want to get too much into the specific positives and negatives of section 8 in this post. Remember, we’re focused on the trend we’re seeing with out of state investors. 

But there are two main consequences to the section 8 trend that are worth mentioning.

Drawback #1: Investors Don’t Fully Understand The Risks

Section 8 investing can be great; I have 3 section 8 tenants myself.

But the reality is folks are jumping on this bandwagon with little research because they think it’s “guaranteed”. 

It’s not. 

I highly recommend reading my post detailing the pros and cons of section 8.

It doesn’t help that gurus are touting section 8 as a strategy and selling expensive courses on how to be successful doing it.

This is extremely misleading for a lot of investors and their expectations simply don’t align with reality.

I caught up with a newer investor that went the section 8 route and he had this to say over email:

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It’s one thing to know all of that going in. But he didn’t, and it wasn’t properly explained to him.

He was sold on section 8 investing and not really told about the drawbacks. 

Maybe he’d still do it. That’s not the point. 

There are plenty of folks that just don’t know what they’re getting into.

Drawback #2: The Section 8 Market Is Becoming Saturated

And with so many investors flocking to section 8 investing as their primary strategy it’s becoming increasingly difficult to find tenants.

I turned a property over a few months ago. It’s in a great area and I priced it slightly below market rent.

As a result, I received over 100 inquiries and 30 applications.

Only one of those had a section 8 voucher!

This is a house that was PERFECT for a section 8 tenant. But they just don’t seem to be out there.

Don’t take my word for it though.

I’m seeing more and more conversations in investor groups like this:

I’ve blocked out the names because this is a private group, but the conversation is pretty damning.

These are folks that have been doing section 8 investing for decades and are acknowledging that the game has changed.

If someone tells you that it’s easy to just step into this market and it will be smooth sailing, think again. You’re competing with experts that are on-the-ground and have a ton of experience.

How We Can Benefit From The Section 8 Investing Craze

So it’s clear that investor sentiment is grossly favoring section 8 investing. And it’s clear that it is becoming increasingly difficult to find section 8 tenants.

So how can we, as investors, benefit from this?

Benefit #1: Invest In Hot Section 8 Markets

The first strategy should be obvious. 

Follow the crowd!

Normally, I don’t like to do this because the crowd is almost always wrong. And they’re partly wrong here with this section 8 investing trend.

But the reality is, if you believe interest rates are staying elevated for a while, then more money will flow into these markets that are attracting section 8 investors. 

As long as cash flow remains largely elusive, folks are going to be looking to invest out of state. Look to the states/regions they are favoring and position yourself accordingly.

But don’t follow them into section 8 investing completely.

Benefit #2: Better Tenant Selection For Cash Paying 

The next step is to be in those markets but embrace what we call “cash paying” tenants. 

The popularity of section 8 investing has sucked up housing supply from the market with lots of folks steadfast on accepting only section 8 tenants.

As a result, a lot of great cash paying tenants are having a hard time finding decent housing options.

This is a massive opportunity. It gives us, as savvier investors, an opportunity to be more discerning with our tenant selection.

Again, this is what I’ve been doing and it’s working wonders. I’ve placed some amazing tenants in the last few months. 

I appreciate all the section 8 investors that are giving me even larger pools of applicants to choose from!

Section 8 Investing Is Not A Strategy

When people ask how I like section 8 investing I generally pause for a minute and say something like, “Overall, I like the program”. 

I don’t love it.

And I don’t hate it.

It’s solid in situations where it makes sense.

Section 8 investing is not a strategy. It’s a tool.

If you look at it through that lens and are open to the BEST possible tenant for your property, you’ll do just fine. 

It’s the folks that have tunnel vision and have drunk the section 8 Kool-Aid that are going to have trouble.

My default is to present a nicely renovated home that will appeal to everyone, understand that I’m likely to take a cash paying tenant, but be open minded to a section 8 tenant. 

That’s served me well in the past and I see no reason to veer from it going forward.